Sure, we all know what it means to buy and sell. But brokers often speak in what seems like a foreign language. Want an intro to lingo?

The lingo of the stock market has been part of our common language since nearly the beginning of organized trading. The phrases "buy low, sell high" and "buy, sell, buy, sell" are so common that they have become running jokes in kid's cartoons, as prevalent as the giant anvil that flattens the villain. The problem is that if you don't know what the lingo means, and what the economic effect of that meaning will be to your net worth, you might as well be standing under the big anvil when it falls.

Investing Lingo 101
"Learning investing language is very much like preparing for foreign travel," says Marilyn Cohen, columnist for Forbes, and author of The Bond Bible, Prentice Hall Press. "Every segment of the investment arena has its own vocabulary. The first-time investor has to learn some of the basic words, as well as how to read the road map of the market."

Almost all investment sites have glossaries that will give you the definition of a specific word or term. Getting the definition is a crucial first step, but to figure out the theory behind a word, and predict what effect it will have on your portfolio, is another matter.

The Example
Let's look at the example of what appears to be a simple stock transaction. The definitions for the investment terms in bold can be found immediately following the example.

"I can call a broker and say 'I want 50 shares of Microsoft today,' and the broker will say, 'I can get that for you at 78 7/8,'" says Cohen. "What the broker didn't say was 'it's bid at 78 13/16 and the ask is at 78 7/8.' That means that the spread is .0625. So if you want to buy it right now without waiting, you'll pay 78 7/8, and you would be asking the broker to put in a limit order. You're saying that 78 7/8 is all you're willing to pay. When you place a limit order you must determine a time frame for the order. The choices are: day order or good 'til cancelled order."

"If on the other hand, you say 'I just want to buy it, whatever it costs' then you'll pay whatever the price per share is at the time the broker buys the shares. That's called a market order. The broker can buy the shares at the next up-tick or down-tick and you could be unlucky and pay the higher price, or you could be lucky and pay the lower price. Market orders are subject to the vagaries of the market."

In this example, if you bought 50 shares of Microsoft at 78 7/8 you would spend $3,943.75. If you turned around and sold them at 78 13/16, the spread would be 3 dollars and 12 1/2 cents.

The importance of the bid, ask, and spread comes over time, when you can see the difference between what you bought the stock for and what you could sell it for at a later date. The hope, of course, is that the bid price will increase over time and you will make money when you sell your shares.

Definitions in Order of Appearance

Bid: The highest price an investor is willing to pay to buy a share of stock.

Ask: The lowest price an investor will accept when selling a share of stock.

Spread: The gap between the bid price and the ask price of a share of stock.

Limit Order: An order to buy a stock at or below a specified price, or to sell a stock at or above a specified price. For instance, you could tell a broker, "Buy me 100 shares of XYZ Corp at $8 or less," or to "sell 100 shares of XYZ at $10 or better." The customer specifies a price, and the order can be executed only if the market reaches, or betters, that price. The caveat for a limit order is that the shares are only bought or sold if someone wants to buy them at that price.

Day Order: An order to buy or sell stock that automatically expires if it can't be executed on the day it is requested.

Good 'Til Canceled (GTC): An order to buy or sell stock that is good until you cancel it. Brokerages usually set a limit of 30-60 days, at which time the GTC expires if it is not restated.

Market Order: An order to immediately buy or sell shares of stock at the current trading price.

Up-Tick: A transaction executed at a price higher than the preceding transaction in that company's stock.

Down-Tick: The sale of a company's stock at a price below that of its preceding sale.

Learning as You Go
"I think one of the reasons that online investing has become so successful is because you can see the trades as you go. You can pull up a graph and see a stocks highs and lows over a day, the last three months, or the last 12 months. You can see if it went from a low of 78 1/2 to a high of 80 1/2, and in what time period. It's right there," says Cohen. "The screen gives you enough information to answer the questions you should be asking a broker, but might not think to ask as a beginner. It can be a supportive way to learn."

Of course, you have to remember that you're working with real money and there are significant risks involved. How can you, as a beginner, decide what stocks might be a good investment?

"I think it's a good idea for beginners to which is to buy the stocks of companies whose products or services you use and/or understand," advises Cohen. "Then you have to do a little bit of work and research on the prospects of that company. I think in the long haul, companies whose revenues are growing at a fast pace (such as 20% a year), and whose earnings are growing commensurately, are the ones to invest in." There are many online resources for researching the viability, track record, and mission of a company.

The Moral of the Story
"I think I've gotten hurt the most when I've followed the herd. I did great when the momentum was there and didn't do well then it wasn't. I wasn't investing in what I knew," says Cohen. "One of the morals of investing is that you really learn from your mistakes, not your successes."

"The challenge of the market, and why it's addictive, is that there's always something new to learn. It's very dynamic," says Cohen. "Very few market investors know all the vocabulary and how to navigate the whole market. You can't look at it as 'Oh my God I've got to learn all of this stuff and it's overwhelming.' You have to look at it as a dynamic challenge."

Of course when the challenge involves your hard-earned money, it's a good idea to ask a lot of questions, make sure you understand the practical applications of the answers, and do your homework. Everyone, even the most naïve beginner, knows that investing in the stock market comes with the potential for both risk and reward. You just want to do what you can to avoid having an anvil-on-the-head result.